Investment risk in bioenergycrops

Author

Theodoros Skevas, Scott Swinton, Sophia Tanner, Gregg Sanford and Kurt Thelen

No 205440, 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California from  Agricultural and Applied Economics Association,  Western Agricultural Economics Association

Abstract: Perennial, cellulosic bioenergy crops represent a risky investment. The potential for adoption of these cropsdepends not only on mean net returns, but also on the associated probability distributions and on the risk preferences of farmers. Using six-year observed crop yield data from highly productive and marginal sites in the southern Great Lakes region and assuming risk neutrality, we calculate expected breakeven biomass yields and prices compared to a base case of corn. Next we develop Monte Carlo budget simulations of stochastic output prices and yields. Crop yield simulations decompose risk into three components: crop establishment survival, time to maturity, and mature yield variability. Results reveal that corn with grain and stover removal is the least risky investment option, and it dominates all perennial systems considered across a wide range of constant absolute risk aversion levels. Perennial bioenergy crops have a higher potential to successfully compete with corn under marginal crop production conditions.

Keywords: Stochastic budgeting; Monte Carlo simulation; bioenergy; cellulosic biomass; energy crops; investment analysis; risk.; Production Economics; Risk and Uncertainty; Q42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene
Date: 2015
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